Financial services titan limits ETF commissions

Financial services titan limits ETF commissions

As calls for a best-interest standard continue in Canada, US investment firms are shifting toward more client-friendly payment models. Joining the movement is Morgan Stanley, which has capped the amount its financial advisors can charge clients for trading transactions.

The cap covers ETFs, stocks, annuities, and unit investment trusts (UITs), according to Reuters. For equities and ETFs, the maximum commission is 2.5%; the cap on annuities and ETFs wasn’t specified. The news site said it was not clear whether caps had been set previously.

Speaking to AdvisorHub, numerous unnamed brokers said the cap isn’t dramatic since few advisors would charge commissions that high. However, one Morgan Stanley advisor told the site that the move definitely helps clients, saying that his commission charge was cut down by 10% as a result of the changes.

Brokers weighing in on the news say that the caps on annuities and UITs may have more far-reaching consequences, since reps are attracted to such high-commission products. A spokeswoman for Morgan Stanley confirmed that “new commission structures” have been applied to the products, saying they “lower client costs, in some cases substantially.”

The move from Morgan Stanley was in part due to a fiduciary rule from the US Department of Labour (DOL), which seeks to require retirement brokers to put clients’ interests first. It was meant to take effect on April 10, but has been delayed at least two months, and might be eliminated under President Donald Trump’s business-friendly regime.

Regardless, the bell for client protection has been rung, and many brokerages are pushing forward with plans to prepare for the rule. One Morgan Stanley advisor stated that the cap actually helps brokers because “it takes away a lot of the pricing uncertainty that clients are asking about.”

The firm is also aiming to shift from a commission-based model to fee-based accounts as part of a larger overarching strategy.

Industry news

The advisory industry is experiencing stable levels of profitability and continues to grow but at a rate slower than five years ago. This slowing will require changes in how firms are managed in order to build their bottom line